The ongoing negative effects of load-shedding continue to affect businesses, individuals’ homes, and their livelihoods. To address South Africa’s energy crisis, National Treasury has proposed draft legislative amendments to introduce two renewable energy tax incentives. These proposed behavioural incentives, in addition to the already available incentives, assist in lessening a taxpayer’s reliance on the national grid and provide an incentive for doing so while promoting clean energy.
Existing Incentive: Section 12B of the Income Tax Act
The already available section 12B of the Income Tax Act 58 of 1962 (“ITA”) tax incentive allows a business to deduct the costs of certain renewable energy installations over a one or three-year period. To qualify for this deduction, the machinery, plant, implement, utensil, or article owned by the business must be used to generate electricity from wind power, PV solar energy, concentrated solar energy, hydropower to produce electricity of not more than 30 megawatts, or biomass comprising organic wastes, landfill gas or plant material. This incentive also covers enhancements to the mentioned machinery, plant, implement, utensil, or items owned by the taxpayer, along with associated foundations or support structures.
Enhanced Incentive: Proposed Section 12BA
The 2023 Budget proposed the promulgation of section 12BA which provides a tax incentive that allows businesses to claim a 125% tax deduction, in the first year, for qualifying capital expenditure in respect of all renewable energy projects, with no threshold on generation capacity. In addition, we propose to make this enhanced incentive available for a period of two years. Furthermore, investors must apply the criteria to renewable energy projects that they put into operation for the first time between 1 March 2023 and 1 March 2025.
Support for Individuals: Introduction of Section 6C
The proposed legislative amendments also extend their support to individual taxpayers through the introduction of section 6C. This proposal introduces a tax rebate designed to benefit individual taxpayers who invest in new and unused solar photovoltaic (“PV”) panels. Under this provision, eligible individuals can claim a tax rebate equivalent to 25% of the cost incurred, with a maximum cap of R15,000 per year. This incentive is applicable for a one-year duration and covers new and unused solar PV panels that an individual acquires and puts into operation for the first time between 1 March 2023 and 1 March 2024. To qualify for this incentive, individual taxpayers must fulfil specific criteria. These include the requirement that only brand-new PV solar panels are eligible, with a maximum panel capacity of 275W each. Furthermore, the installation of these solar panels must take place at a primary residence primarily utilised for domestic purposes.
Effective Implementation and Timeline
The Draft Taxation Laws Amendment Bill, 2023, introduced the proposed tax incentives and deemed them effective from 1 March 2023. These incentives apply to years of assessment that start on or after 1 March 2023.
It’s important to note that there is currently no availability of tax incentives or allowances for the use or acquisition of inverters and batteries, and no legislative amendments are being proposed for this purpose. The National Treasury stated that this is to ensure a focus on the promotion of additional generation of energy, ensuring that attention remains directed towards boosting the production of renewable energy.
Conclusion
By providing these tax incentives, the South African government aims to encourage businesses and individuals to actively participate in the transition to cleaner and more resilient energy sources. Consequently, this will assist in relieving strain on the grid and help move closer to resolving the issue of load-shedding and ending energy scarcity in South Africa.
– Written by Jean-Roux van Huyssteen Director at TRM Tax Attorneys and Rebecca Kaps Candidate Attorney at TRM Tax Attorneys
